The Financial Industry Regulation Authority (FINRA) is slowly shifting its interest from levying heavy fines against firms to getting money back into the pockets of investors. That is according to Brian L. Rubin, a partner at Eversheds Sutherland, the co-author of the newly-released annual analysis of the disciplinary actions reported by the FINRA.
According to the study, FINRA has reported restitution of approximately $66 million in 2017 – an increase of 136% from the 28% million reported in 2016. On the other hand, fines reported by FINRA last year decreased 58% to $73 million from the record-setting a total of $176 million in 2016. The fines levied in 2017 were also 22% lower than the $94 million in fines reported in 2015. Still, fines had increased by 161% since 2008, when FINRA assessed $28 million in fines, the study found.
What Does This Mean for Electronics Communication Retention Practices of Financial Firms?
Even though fines levied in 2017 have decreased, it does not mean that FINRA authorities are now going soft on financial firms. Although the assessed penalties last year have dropped, it is the fourth highest when benchmarked to the last ten years of data. Therefore, financial firms cannot slacken their adherence to the mechanics of FINRA regulations, such as electronic communication retention.
In fact, the study ranked electronic communication capture and retention cases as the third biggest amount of fines assessed by FINRA – and is the first time such cases have appeared on Eversheds Sutherland’s Top Enforcement Issues list since its first-place ranking in 2013.
Self-Regulatory Organizations (SROs) alone have reported $8.3 million in fines for 44 electronic communications cases in 2017. The largest electronic communications case was against a firm, which was fined for a total of $2 million for failing to maintain reasonably designed supervisory systems and procedures for reviewing email communications. Moreover, FINRA found that the firm unreasonably excluded from email surveillance a certain employee who managed customer brokerage accounts and failed to apply its entire lexicon to the emails of about 1,300 representatives who worked in branches that hosted their email servers.
Text Message Archiving: A New Trend in FINRA 2017 Enforcement Issues
Aside from email, FINRA also has another form of electronic communication in mind: business text messaging. In the 2017 Electronics Communications Compliance Survey, non-email communications including text/SMS messages are the top risk concern for financial services compliance professionals.
For this reason, many financial services firms do not allow their employees to use text messaging to communicate with their clients. In reality, it is the clients who prefer text messaging as a way to reach their broker-dealers – forcing most brokers to switch over to regulated email channels to maintain the documented flow of interactions required by FINRA.
Some brokers, however, choose convenience rather than compliance, by communicating with their clients via their personal mobile device and unregulated messaging apps. Such non-compliance with text message archiving rules has led FINRA to fine and suspend four brokers in 2017.
These recent fines only prove that brokers will continue using text messaging even if the firm has established a strong prohibition policy against the use of such a channel. It is therefore important for financial organizations to adopt an enterprise SMS archiving platform that will allow their brokers to communicate with customers via text and at the same will empower them with capabilities to meet the regulatory requirements for supervising and archiving all messages.
As text messaging grows in popularity among finance companies, empowering broker-dealers with an advanced text messaging app should be the top priority of companies if they want to meet their needs for supervisory oversight and keep their competitiveness in the market.
TeleMessage, a global leader in innovative SaaS messaging and mobility solutions for enterprises, offers all these archiving features to companies under FINRA archiving requirements through our Mobile Archiver solution. With our platform, we can help you meet the various compliance mandates for managing electronic records including SMS texts, encrypted communications, direct message or any other type of electronic messaging system.
Contact us today by calling +1 (978) 263-1015 or visit our website www.telemessage.com.